Obama's Forrest Gump analysis of rising gas prices.
'The
American people aren't stupid," thundered President Obama yesterday in
Miami, ridiculing Republicans who are blaming him for rising gasoline
prices. Let's hope he's right, because not even Forrest Gump could
believe the logic of what Mr. Obama is trying to sell.
To wit, that a) gasoline prices are beyond his control, but b) to the
extent oil and gas production is rising in America, his energy policies
deserve all the credit, and c) higher prices are one more reason to
raise taxes on oil and gas drillers while handing even more subsidies to
his friends in green energy. Where to begin?
It's true enough that oil prices can't be commanded from the Oval
Office, so in that sense Mr. Obama's disavowal of blame is a rare show
of humility in the face of market forces. Would that he showed similar
modesty in trying to command the tides of home prices, car sales ("cash
for clunkers"), or the production of electric batteries.
The oil price surge has several likely sources. One is the turmoil in
the Middle East, especially new fears of a supply shock from a conflict
with Iran. But it's worth recalling that Mr. Obama also blamed the last
oil-price surge, in spring 2011, on the Libyan uprising. Moammar
Gadhafi is now gone and Libyan oil production is coming back on stream,
yet oil prices dipped only briefly below $90 a barrel and have been
rising since October. Something else must be going on.
Mr. Obama yesterday blamed rising demand from the likes of Brazil and
China, and there is something to that as well. But this energy demand
is also not new, and if anything Chinese and Brazilian economic growth
has been slowing in recent months.
Another suspect—one Mr. Obama doesn't like to mention—is U.S.
monetary policy. Oil is traded in dollars, and its price therefore rises
when the value of the dollar falls, all else being equal. The Federal
Reserve throughout Mr. Obama's term has pursued the easiest monetary
policy in modern times, expressly to revive the housing market. It has
done so with the private support and urging of the White House and
through Mr. Obama's appointees who are now a majority on the Fed's Board
of Governors.
Associated Press
Oil staged its last price surge along
with other commodity prices when the Fed revved up its second burst of
"quantitative easing" in 2010-2011. Prices stabilized when QE2 ended.
But in recent months the Fed has again signaled its commitment to
near-zero interest rates first through 2013, and recently through 2014.
Commodity prices, including oil, have since begun another surge, and
hedge funds have begun to bet on commodity plays again. John Paulson
says he's betting on gold, the ultimate hedge against a falling dollar.
Fed officials and Mr. Obama want to take credit for easy money if
stock-market and housing prices rise, but then deny any responsibility
if commodity prices rise too, causing food and energy prices to soar for
consumers. They can't have it both ways, as not-so-stupid Americans
intuitively understand when they buy groceries or gas. This is the
double-edged sword of an economic recovery "built to last" on easy money
rather than on sound fiscal and regulatory policies.
As for domestic energy, Mr. Obama rightly points to the rising share
of U.S. oil consumption now produced at home. But this trend began in
the late Bush Administration, which opened up large new areas on and
offshore for oil and gas drilling that are now coming on stream. Mr.
Obama sneered at expanded drilling as a candidate in 2008 and for most
of his term has done little to expand it.
In early 2010, he proposed to open some new areas to drilling but
shut that down after the Gulf oil spill. According to the Greater New
Orleans Gulf Permits Index for January 31, over the previous three
months the feds issued an average of three deep-water drilling permits a
month compared to the historical average of seven. Over the same three
months, the feds approved an average of 4.7 shallow-water permits a
month, compared to the historical average of 14.7.
Approval of an offshore drilling plan now takes 92 days, 31 more than
the historical average. And so far in 2012, an average of 23% of all
drilling plans have been approved, compared to the average of 73.4%.
Oh, and don't forget the Keystone XL pipeline, which would have
increased the delivery of oil from Canada and North Dakota's Bakken
Shale to Gulf Coast refineries, replacing oil from Venezuela.
The reality is that most of the
increase in U.S. oil and gas production has come despite the Obama
Administration. It is flowing from the shale boom, which is the result
of private technological advances and investment. Mr. Obama has seen the
energy sun rise and is crowing like a rooster that he made it happen.
Mr. Obama yesterday also repeated his proposal that now is the time
to raise taxes on oil and gas companies, as if doing so will make them
more likely to drill. He must not believe the economic truism that when
you tax something you get less of it, including fewer of the new jobs
they've created.
***
We'd almost feel sorry for Mr. Obama's gas-price
predicament if it weren't a case of rough justice. The President has
deliberately sought to raise the price of energy throughout the economy
via his cap-and-trade agenda. He is now getting his wish, albeit a
little too overtly for political comfort. Mr. Obama has also spent three
years blaming George W. Bush for every economic ill. If Mr. Obama now
feels frustrated by economic events beyond his control, perhaps he
should call Mr. Bush for consolation.
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